IT and its Discontents

The problem with IT as a source of productivity gains is that those gains, as the McKinsey study showed, are so unevenly distributed. Put bluntly, some companies, and some sectors, are a whole lot better than others at putting IT to work productively. John Parkinson, former chief technologist for the Americas at Capgemini, points out that IT can only boost productivity if it lets you do more with less effort, or you make the time it takes to do the work shorter. But a lot of new technology innovations, he says, "imposed a productivity penalty by forcing people to relearn how they do things, which reduces their productivity for a while. That, I think, is what the McKinsey study showed: They picked a period of time, the 1990s, when lots of relearning was going on, to do the study. Everybody was disrupted by broad adoption of PCs and networks, the Internet, e-commerce. But once we figured it out, the productivity gains kicked in, because you were over the learning hump.

"The second penalty you pay, because technology makes possible things you couldn't do before, is that you now do those things because they're possible," Parkinson adds. "And that adds work to the total amount people have to do." To illustrate the problem, Parkinson points to information-based decision-making. "It used to be that managers didn't worry about gathering mountains of information, populating spreadsheets, building in the models and agonizing over what they told you. You just said, 'yeah, I think we'll go that way.' And you went. But now that process takes a lot more effort. So there's a productivity loss in some parts of business. But that doesn't mean there's an effectiveness loss. It just means that the cost of being right went up."

On a larger scale, much of the investment in IT made by corporations was simply not productive. "There was a lot of "me-too" investment in IT across a lot of sectors since 1995," says McKinsey's Farrell. "Companies saw that their rivals had something new, and so they made these very large investments without recognizing that even within a sector, different competitive strategies mean your productivity could be driven by different things. But making IT investments in areas that aren't driving the bulk of your potential productivity gains is wasted investment."